Where the industry is going - SPE General Session

Wednesday, February 18, 2015

At the General Session of the 2014 ATCE conference in Amsterdam, senior representatives of ExxonMobil, PEMEX, Technip and the International Energy Agency discussed where the industry is going, covering reducing production costs, carbon capture, the oil price, technical innovation, collaboration and education

In his introduction to the general session of the Society of Petroleum Engineers (SPE) annual technical conference in Amsterdam, Matthias Bichsel, a former Capital Projects and Technology Director with Shell and executive vice president, technical, for exploration and production, noted that nobody knows how much the world is willing to pay for oil and gas - and so how high the price could rise.

For the moment, many people in the oil and gas industry are more concerned about low oil prices than high oil prices - but whether the price will stay low enough to really change behaviour is another issue, delegates heard.

'We should not exaggerate the [problem of low oil prices],' said Chris Besson, Senior Analyst, Office of the Chief Economist, International Energy Agency. ' Demand is still expected to grow, supply is increasing by the same amount. In the long term oil demand will continue to grow, there's absolutely no doubt. Sooner or later the market will become tense again.'

'We talk about cost and price. [but] which one drives the other, it's a complicated interaction,' Mr Besson said. 'It is not as simple as saying we need to drive the cost down. Peak oil will come when demand is going to peak, either when we move to other sorts of energy or when it becomes unaffordable.'

Mr Besson noted that much oil and gas investment is still being made by National Oil Companies, which have a different approach to managing cost than international oil companies.

'The important thing is we don't turn this (low oil prices) into a crisis,' said Neil Duffin, President of ExxonMobil Development Company. 'It's a chance for the industry to redefine itself.'

One of the best ways to reduce production costs, Mr Duffin said, is to get better access to resources in the first place. 'The more access we can get, the more [we can find ways to do things less expensively].'

'Your prioritisation of projects may change based on your estimate of the oil price,' he said. 'But we've been through longer cycles than this. Does it last long enough to change the mindset of people?'

And 'a lot of projects spend 6 years [in development] before you spend money on the kit itself.'

Mr Duffin noted that there was a big opportunity for the industry to get more efficient through better early stage planning.

The industry should also be tackling indirect costs, Mr Duffin said. 'You build camps to accommodate 6 people, 1 is working and 5 are supporting the person,' he said. 'Indirect costs are a huge proportion of the project.'

The industry could also do much better at standardisation. 'A lot of people in the industry don't understand what standard means. We'll specify 'I want one of those but I want you to change something.'' Mr Duffin said.

'So I think there's an education on standardisation - to get that to a more practical sense. Come up with standards when it makes sense. ExxonMobil has been guilty of this. You can't 'design one build many' if you change the spec every time. The industry could be much more tolerant.'

'A great way to minimise costs is not to over engineer,' said Technip's Phillipe Barril. 'It's about minimising the bureaucracy around the engineering.'

Environment

The audience was asked to vote by text message what they see as the biggest environmental impact of the oil and gas industry, covering atmospheric emissions, water use and land use. The highest votes went to 'atmospheric emissions'.

Neil Duffin, President, ExxonMobil Development Company noted that there are issues with all of these, but also technologies to mitigate environmental impact. 'The question is, what is the cost,' he said.

'Regulations are going tougher and more incremental. There has to be an open and frank dialogue with regulators.'

'I'm not sure we are optimising land usage,' said Phillipe Barril, President and Chief Operating Officer, Technip, 'These are things our industry needs to improve.

The panel was asked if there is a conflict between renewables and the oil and gas industry. Chris Besson, Senior Energy Analyst, International Energy Agency (IEA) said, 'the answer is clearly no. If you look at future needs for energy, we'll need everything we can throw at it. You still need plenty of oil in the mix.'

The panel was asked, what will happen if China and India suddenly decided they just wanted electric vehicles. 'Even if they did, it would take 30 years to get there,' Mr Besson said.

The panel was asked if CCS was 'a net cost or a net benefit'.

The IEA's Chris Besson said, 'If we want to have any chance to achieve the 2 degree objective, CCS has to be part of the equation. Without it, forget it. It is absolutely a benefit. If it is a net cost this is a very complex issue.'

ExxonMobil's Neil Daffin was asked if he saw CCS as a reliable, realistic option. 'One size doesn't fit all,' he replied. 'In some areas it will be [viable] and you can justify the cost. In other areas the cost is so high that some other method [of decarbonisation might better].'

'What's important is that whatever system is put in place is fair across the industry. It is the uncertainty that causes a lot of the [concern].'

Technip's Phillipe Barril agreed, 'I think one size fits all will not be the answer. In some places you can reinject CO2. There needs to be further investment - we are not ready to tackle this. I think that industry of CO2 capture is a good industry for us to invest.'

Ultimately, whether we reduce carbon emissions enough 'depends how ambitious the international community will be,' said IEA's Chris Bresson. 'To get two degrees you need everything you have, efficiency, renewables, gas, reducing methane emissions, and you need to throw in CCS or you don't get there. The international community is a bit stalled on this.'

PEMEX's Gustavo Hernandez said, 'When I started in the industry we were still flaring gas. I'm confident the industry can find the right technology to meet hydrocarbon demand growth in pure and sustainable way.

Technical innovation

The audience was asked to vote on which areas of the upstream oil and gas industry should see the most value from technical innovation. The votes were drilling (20), operations (16), facilities construction (13), and exploration (10).

Neil Duffin, President, ExxonMobil Development Company, said, 'in some of these big deepwater projects, drilling costs are a significant part of total investment.

'If you lose control of [the cost of] a project at the beginning you're going to carry that cost.'

'We have shale wells that can be drilled in a week or less,' said Gustavo Hernandez, Director General, PEMEX Exploration and Production.

The panel was asked what research and development the industry should be focussing in.

We need more R+D in exploration,' said PEMEX's Gustavo Hernandez.

'We are facing frontier exploration and business as usual exploration. 'The key bit is how do we properly scope projects,' Mr Duffin said.

Safety

The audience was asked to vote on 'the best criterion to determine how much a company should spend on safety', with a choice of 'given percent of annual revenue, whatever it takes for risks to be As Low As Reasonably Practicable (ALARP), enough to meet regulation, and until cost benefit ratio shows decreasing return.'

Nearly every respondent in the room selected 'whatever it takes for risks to be ALARP.'

'If it had been a different answer I would have stopped the conference,' joked Phillipe Barril, President and Chief Operating Officer, Technip. 'Safety is a good investment it always pays off. I'd like to get the names of the people who answered differently.'

Collaboration

The panel was asked what stops oil companies from collaborating.

'Projects have become more complex, we are integrating more stages,' said PEMEX's Gustavo Hernandez. 'We have projects that deliver after the due date and over budget. Maybe we have integrated too much. We are engaging in more complex projects.'

ExxonMobil's Neil Duffin noted that 'routine type projects traditionally come in early and under budget. The large scale, mega, non-routine projects see the brunt of schedule over runs. That's where the industry has got to get its act together.'

People

The panel was asked, 'How do you attract and retain the best people?'

ExxonMobil's Neil Duffin said, 'Give them a job they love to do. We give people early opportunities to get on to the sites.'

'A few years ago everyone was worried about what the new generation of recruits would be like. They are absolutely outstanding.'

'Some countries are blocking young people from entering, they want more seasoned people,' he said.

'We've got to do a good job in STEM issue - getting folks into engineering and math.'

The panel was asked about if it should be doing more education for the general public. 'There's a large amount of misunderstanding of what the industry does,' said IEA's Chris Besson. 'My take is to turn back to the industry and say, are you doing enough to maintain public confidence?'

'For example CO2 reduction - I'm not sure the industry is doing enough to make that visible.'